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3232It is time to restore the wage sharehttps://www.socialeurope.eu/restore-the-wage-share
Wed, 20 Feb 2019 04:00:37 +0000https://www.socialeurope.eu/?p=57959The wage share has been falling across the world as inequality has increased in recent decades. A co-ordinated rise is needed, starting in Europe, to reverse that. Old economic ‘truths’ are being re-evaluated by economists and international organisations. Obsolete thoughts—such as that an equal income distribution is a threat to growth—have been replaced by a […]

]]>The wage share has been falling across the world as inequality has increased in recent decades. A co-ordinated rise is needed, starting in Europe, to reverse that.

Thomas Carlén

Old economic ‘truths’ are being re-evaluated by economists and international organisations. Obsolete thoughts—such as that an equal income distribution is a threat to growth—have been replaced by a growing concern about widening income gaps and their negative consequences for macroeconomic performance and political stability. It should now be clear to everyone that inequality is bad for business and becomes a breeding ground for populists and protectionists.

Inequality will however continue to grow until politicians and trade unions put a stop to it. The Swedish economist Per Molander describes this in his book The Anatomy of Inequality: ‘Without an active distribution policy, society moves as relentlessly toward the inequality limit [where a small elite control the entire economic surplus] as a stone plummets to the ground when dropped, falling with each moment that passes unless it encounters some resistance.’

Wages play a key role

It is obvious that wages play a key role in income distribution. The potential role of wages as a driver of growth is less accepted, however, at least among mainstream economists and business leaders. But those who see wages merely as a cost are underestimating wages as the source of demand, sales and so production. Therefore, we need to talk about the income distribution between labour and capital.

Adjusted wage share of GDP, 1970-2017

Note: ‘Advanced economies’ is an unweighted average of 17 high income countries. Source: AMECO

A higher wage share would, according to several empirical studies using post-Keynesian models, increase domestic demand in virtually all countries. In most, this positive effect would exceed the potentially negative effects on investment and net exports, resulting in higher growth. This is particularly true for larger economic areas such as the EU since the member states mainly trade with each other.

For most households, wages are the sole source of income. And the propensity to save, rather than consume, is higher from capital income than wage income. Therefore, a higher wage share will have a greater positive effect on demand and consumption compared with higher profit shares increasing capital income for the few—which have not resulted in corresponding increases in investment. Higher real wages, on the other hand, promote labour productivity.

Wage ‘moderation’ thus hampers growth in most, although not all, economies. But those economies which would benefit from wage restraint, by boosting net exports, depend on other countries´ domestic demand. If their trading partners also suppress wages, there will be no increase in net exports.

With wage increases no longer driving growth, two other growth strategies have emerged. The first is a debt-led strategy: household consumption is driven by rising debt, as well as asset, including real-estate, bubbles. The second is an export-led strategy: growth is driven by net exports, boosted by suppressed wages and depending on a beggar-thy-neighbour policy. The consequences are growing global imbalances and increased risks of financial crises.

One might argue that a wage-led growth strategy, with the purpose of increasing consumption, is not compatible with the battle against climate breakdown. Obviously, the production and transport of goods and services must be adapted to our climate goals, regardless of growth strategy. But we do not protect the climate by allowing widening income gaps—thereby risking growing support for populist movements which often deny climate change and want to stay out of international co-operation.

Weaker bargaining power

According to mainstream economics, globalisation and technological progress are the key factors behind the falling wage share, meaning there is little we can do to change the situation. In this perspective, continuing international integration and automation will unceasingly increase the pressure on the wage share.

But recent studies, based on a political-economy approach, point to institutional and social factors. Wages are set in negotiations and workers´ bargaining power has, for several reasons, weakened since the 1980s.

First, globalisation, technological progress and deregulated financial markets give employers several fall-back options which threaten workers. Companies can move jobs to low-cost countries, substitute labour with capital and invest in real or financial assets internationally. Secondly, increases in firm concentration, driven by the rise of superstar firms, reduce market competition and tend to lower wage shares. Thirdly, welfare-state retrenchment and weaker income security make workers more directly dependent on their employer and lower their ‘reservation’ (minimally acceptable) wages. Fourthly, unemployment has been higher during the last decades compared with the 1970s. Finally, union density has fallen in virtually all countries.

Therefore, it is absolutely possible to restore the wage share with the right policies. Sweden is a good example.

Swedish workers still have a strong bargaining position. Even if income gaps are growing in Sweden too, it is not because of growing wage gaps. Real wages have increased by 60 per cent over the last two decades, benefiting all workers. The wage share, which initially fell with the global trend, has increased, albeit modestly, while maintaining a top position among the world’s most competitive economies. This has been combined with the highest employment rate in the EU. This is one reason why Swedish trade unions regard globalisation, technological progress and free trade as opportunities, rather than threats.

Restoring the balance

The necessary reforms reflect the reasons why the wage share has fallen. We need to restore the balance of power between the social partners. In short, this means:

The positive effect on growth is greater for each country if several countries raise their wage share simultaneously because of the synergies involved. There is more to win and less to lose for everyone if there is a co-ordinated increase of the wage shares. But many countries find themselves stuck in the ‘prisoners´ dilemma’, where no one wants to go first out of fear of losing competitiveness and investment to others.

Therefore, big advanced economies—preferably the EU as the European Trade Union Confederation has argued—or countries with large current-account surpluses should take the lead and raise their wage shares. Small and open economies can then follow suit. This requires a more internationally co-ordinated trade union movement and co-ordinated political reforms.

In a globalised world, wages must also be discussed across borders. One forum for this is the Swedish initiative Global Deal, now handed over to the OECD, which promotes effective social dialogue. The objectives are to increase productivity, reduce inequality and enable everyone to benefit from globalisation.

An internationally co-ordinated raising of the wage share may sound like a ‘mission impossible’. Yet wage shares have moved in a synchronised way—falling—for decades. And if we avoid this challenge, are we then willing to accept the current situation?

]]>Why top rates of income tax should be much higherhttps://www.socialeurope.eu/top-rates-of-income-tax
Wed, 06 Feb 2019 04:00:28 +0000https://www.socialeurope.eu/?p=57710The new US congresswoman Alexandria Ocasio-Cortez has kickstarted a debate on taxation. Arguments for high income tax rates are not punitive—but they are political as well as pecuniary. When people complain that ‘neoliberalism’ is a meaningless concept, I point them to what has happened to the top rate of income tax since around 1980, not […]

]]>The new US congresswoman Alexandria Ocasio-Cortez has kickstarted a debate on taxation. Arguments for high income tax rates are not punitive—but they are political as well as pecuniary.

Simon Wren-Lewis

When people complain that ‘neoliberalism’ is a meaningless concept, I point them to what has happened to the top rate of income tax since around 1980, not just in the United States and the UK but elsewhere, as the first graphic shows.

The second is a chart of the US top tax rate over the last century. The Republican president Dwight Eisenhower had top earners paying a 91 per cent marginal rate.

No doubt there are complex reasons for these reductions, but key among them has to be a neoliberal belief that cutting top rates would lead to more dynamic CEOs, who would produce more dynamic companies—and the benefits of this would trickle down to the economy as a whole. Low top tax rates would encourage entrepreneurs to take more risks that were socially beneficial and so on. The argument is so familiar, trotted out routinely by right-wing think tanks, that it hardly needs elaborating. It is a classic example of neoliberals using a bit of simple economics to justify policy that is advantageous to themselves or their paymasters.

Yet the evidence for such an effect is weak, at best. The intuition for why it should be weak is straightforward. Above a certain level of income, other incentives beyond the purely pecuniary become important. Top CEOs, like top footballers, want to be successful at what they do, and more successful than others. They will want success whatever the overall financial rewards of being successful.

Another bit of basic economics that neoliberals hardly ever mention is the diminishing marginal utility of consumption. This implies quite the opposite of low tax rates at the top. It is socially much more beneficial to tax those to whom one dollar is not worth the effort of picking it off the sidewalk and transfer it to those who are poorer. A well known paper by Diamond and Saez found that, after allowing for disincentive and avoidance effects, the optimal top rate of income tax in the US should be 73 per cent.

There are two reasons why even 73 per cent might be an underestimate. Piketty, Saez and Stantcheva have argued that giving CEOs lots of money can have negative incentive effects. The CEOs start putting effort into increasing their salary rather than improving their firm. Part of one’s status comes from what one can afford. When all CEOs are taxed a lot at the margin the size of their salary has little impact on that, but when their salary is not taxed so much they can increase their salary, and therefore status, by extracting more from their own firm. To use some economics jargon, a low marginal tax rate on top incomes can be a good example of an incentive for rent extraction rather than for increasing social output.

But while an extra dollar for a CEO is not going to incentivise them in a positive way very much, one could argue that it incentivises those with talent to aspire to be CEOs. CEOs are always going to be among the richest in society, because a lot of their income will be taxed at lower rates. A paper by Lockwood, Nathanson and Weyl however turns that argument on its head. High salaries are associated with activities, such as finance and law, that have what economists would call negative externalities—they do much less good for society than the size of the salaries paid might suggest. A lot of finance, for example, is about trying to take money from other people rather than growing the size of the overall pie. If high post-tax salaries incentivise talented people into those professions, that is negative for society, which would benefit if they worked in different jobs. One can reduce this misallocation of talent by having higher tax rates on top incomes.

Neoliberals have one last line of defence against raising top tax rates in a single country, and that is migration. The argument is that talent, which could be quite mobile, will move to where it is most rewarded. There is clear evidence that this is true, to an extent. This concern does not however mean we should leave top tax rates where they are or even reduce them—simply that we might not put them up as high as they should otherwise go, while some countries that are attractive to talent continue to have low tax rates on top incomes. Sweden seems to do pretty well with a 70 per cent effective top tax rate nevertheless.

This danger of a race to the bottom with top tax rates makes it all the more important that the US raises its top marginal rate, along the lines recently suggested by the Democrat Alexandria Ocasio-Cortez. For various fairly obvious reasons the US does not need to worry too much about a talent drain if it raised top rates.

Social welfare

The arguments for higher top tax rates are at least as much non-pecuniary. The evidence that social welfare is higher in more equal societies seems compelling. In other words, we should increase top tax rates just because that helps produce a more equal society. I have seen a few attempts to debunk the evidence presented for this in The Spirit Level, but they are not convincing as a whole, while there is even more evidence to support the idea that people are happier in more equal societies.

And there is a final argument for high tax rates at the top which seems particularly relevant to the US and UK at the moment. In a political system such as that in the US where money easily buys political influence, one will find some of those who earn very high salaries trying to do exactly that. This creates a kind of plutocracy. Because money can also help to buy votes, democratic elections may continue without in any way threatening the plutocracy. Even when there are laws limiting the amount that can be spent on elections, the UK shows there are ways for the rich to get around that, particularly if they control large sections of the press.

This is the argument made in an excellent New York Timesop-ed by Emmanuel Saez and Gabriel Zucman. They wrote: ‘An extreme concentration of wealth means an extreme concentration of economic and political power. Although many policies can help address it, progressive income taxation is the fairest and most potent of them all, because it restrains all exorbitant incomes equally, whether they derive from exploiting monopoly power, new financial products, sheer luck or anything else.’

In a short response, the economist Greg Mankiw said: ‘[M]ost rich people I know would have been happy to spend vast sums of money to keep Mr Trump out of the White House. And many tried. The Trump phenomenon is not an argument that the moneyed elites have too much influence on politics. If anything, it is an argument that they have too little.’

But this misunderstands (as some on the left do) the nature of the plutocracy that super incomes and wealth create. It does not create a kind of committee of the very rich that between them decide who rules. It is much more erratic than that. Instead, it allows small groups among the very wealthy, who may be quite unrepresentative, to hijack a democratic system. Donald Trump and Brexit are clear examples. Mankiw is right that one way to avoid that would be to create a more representative kind of plutocracy, but a far better way of avoiding disasters of this kind is to deal with the problem at its source—by reinstating high rates of tax on top incomes.

]]>Why weak competition can increase inequality in Europehttps://www.socialeurope.eu/why-weak-competition-can-increase-inequality-in-europe
Tue, 18 Dec 2018 04:00:33 +0000https://www.socialeurope.eu/?p=53632Like many other advanced economies around the world, the Eurozone is experiencing a productivity slowdown. Data from the ECB show that labour productivity growth has practically halved over the last 20 years. Some economists have suggested that low productivity growth is a sign of “secular stagnation”, a state in which further increases in productivity will […]

Like many other advanced economies around the world, the Eurozone is experiencing a productivity slowdown. Data from the ECB show that labour productivity growth has practically halved over the last 20 years. Some economists have suggested that low productivity growth is a sign of “secular stagnation”, a state in which further increases in productivity will be negligible – caused by a slowdown of population growth and sluggish technological progress. And some have concluded that since productivity and broad wage increases are linked, stagnating productivity threatens the prospects for reducing income inequality.

Dominic Ponattu

Yet, a deeper look into economies around the world uncovers a striking phenomenon: some firms are unscathed by the productivity misery. They constitute a frontier segment of firms that manage to achieve remarkably high productivity growth and show no sign of slowing down. In fact, OECD research finds that the gap between these elite firms and the rest is widening (see figure below). In services, the top 5 percent of firms – the frontier – increased productivity by more than 40 percent between 2001 and 2013, whereas the remaining 95 percent managed about 10 percent. Novel research suggests that this trend can also drive income inequality: employees in the top firms are likely to benefit from stronger wage growth than those working for the average firm – a mechanism that some now refer to as “rent-sharing”.

There is further evidence that growing disparities between firms drive inequality. In many industries, so-called “superstar” firms are claiming larger shares of a market for themselves. These firms are highly innovative and productive – think tech giants like Apple and Google, or Walmart and Starbucks in the offline world. They pay high wages, which are, however, lower than their productivity growth would imply. Thus, wages make up a small share of the large value added of superstar firms. As a result, the growing industry-wide weight of these firms drives down the labour share of income, the slice of the “economic pie” that goes to employees. Its counterpart, the capital share, grows at a higher rate – and since capital tends to be concentrated at the top of the income distribution, a lower labour share is likely to result in higher income inequality.

New research at Bertelsmann Stiftung suggests that superstar firms emerge as many markets increasingly become “winner-takes-all” and competition between firms weakens. The study looks at industry-level microdata from Germany and shows that sales in many service industries became more concentrated over the last decade. Importantly, where market concentration increases, the industry-wide labour share of income falls – a relationship that holds for services, which are shown in the figure below. Each data point represents the combined change in market concentration and labour share within a service industry over a specific period of time (e.g., from 2008 to 2011). We underpin the general pattern on the graph using a more sophisticated statistical analysis that yields the same result: when competition weakens, the labour share goes down.

We also run a back-of-the-envelope calculation to estimate what the decline in the labour share means for affected employees. All other things being equal, we find that increasingly concentrated markets in Germany have cost employees potential wage increases amounting to a total of 11 billion euro between 2008 and 2016. The figure below depicts foregone wage increases for employees in select industries. For instance, an employee in the warehousing industry has had to face foregone wage increases of about 1,600 euro between 2008 and 2011 – which translates into a loss of approximately 5 percent of her/his total gross salary in 2008. There also exist industries with falling concentration rates, which has led to particularly strong wage increases. For example, employees in financial services enjoyed wage increases that were about 2,800 euro higher than those expected in 2008.

So how do frontier or superstar firms arise in the first place? One likely factor is digitalization. Firms with a competitive advantage have always existed, but digitalization allows customers across value chains to identify a superstar service or product more easily – think online price comparison services on the internet. In fact, we find that the stronger digitalization picked up in an industry, the higher the decline in the industry-wide labour share. Crucially, the data suggest that such elite firms do not become dominant due to “unfair play”. Instead, industries in which sales get more concentrated tend to show higher average productivity, pointing at frontier firms being truly more efficient and innovative than the rest.

What can policymakers at the EU level do? Efforts are being discussed about moving towards more innovation through knowledge diffusion, education and permanent individual and corporate upskilling. But these policies must be targeted at the average firm: Superstars easily adopt cutting-edge innovations, but innovations do not trickle down to less productive firms. This calls for innovation policy being more inclusive so that laggard firms can catch up. This could also benefit regional development, which appears to be becoming more important: A recent study by the McKinsey Global Institute suggests that superstar cities are emerging across Europe, potentially exacerbating regional disparities. The successor of the EU’s Horizon2020 program for research and innovation will become one of the largest schemes of its kind and should focus on broad innovation and productivity growth across EU regions. Effectively clustering firms, universities and governments across regions and value chains can contribute to achieving this goal.

Adequate new regulation is also important. Superstars can become so dominant that small, innovative firms are deterred from entering an industry, hampering innovation in the economy. Thus, regulation must care for competition, low entry barriers and infancy support for start-ups – in other words, regulation must become a “common good” of a level playing field in an ever more digitalized EU economy. Moreover, policy makers are grappling with the taxation of digital behemoths and disruptive business models. Novel approaches to efficient taxation of data exist and must be discussed. Finally, the decline of the labour share may continue. It will be crucial for many in the workforce that trade unions press for wages growing in line with productivity.

]]>Germany sticks to its mercantilist modelhttps://www.socialeurope.eu/germany-sticks-to-its-mercantilist-model
Thu, 06 Dec 2018 04:00:28 +0000https://www.socialeurope.eu/?p=53499In a recent LSE blog, (reproduced here), Donato Di Carlo presents empirical evidence for what he considers a ‘quiet rebalancing’ of the German economy. Using 2010 as a reference point, he bases his argument on a comparison of the growth of real unit labour costs, real expenditures, and import-export relations of Germany vis-à-vis other European […]

In a recent LSE blog, (reproduced here), Donato Di Carlo presents empirical evidence for what he considers a ‘quiet rebalancing’ of the German economy. Using 2010 as a reference point, he bases his argument on a comparison of the growth of real unit labour costs, real expenditures, and import-export relations of Germany vis-à-vis other European countries, and interprets the trends as a process of readjustment.

However, given that the accumulation of imbalances began with the onset of the European Monetary Union (EMU), a longer-term perspective is needed to judge whether a rebalancing process has indeed taken place. Moreover, if we consider that drastic austerity measures were imposed on several crisis-ridden eurozone countries, the apparent readjustment of intra-European imbalances can be more convincingly interpreted as a result of the contraction in the European periphery.

As Di Carlo rightly points out, the scale of the imbalances within the eurozone has been at the core of the academic and political debate. The most common criticism of Germany’s excessive surpluses usually refers to the wage restraint policies that the government implemented from the onset of EMU in the late 1990s. With unit labour costs undercutting the inflation target set by the European Central Bank (ECB), Germany has amassed substantial gains in its price competitiveness through an effective depreciation of its real exchange rate.

This, in turn, enabled an accumulation of surpluses, which would have been impossible under a fluctuating exchange rate regime and an appreciating currency. The problematic implications of the competitive divergences across the eurozone are generally well understood. Now, the question about its viability hinges upon the rectification of the accumulated imbalances.

So how should we think about competitive divergence when we work with empirical data? First, it is important to acknowledge that, by definition, the competitive gains of one country will equal the competitive loss of another, as competitiveness itself is a relative concept. A statement such as ‘Germany appreciated vis-à-vis its European neighbours’ necessarily implies that the latter have depreciated vis-à-vis Germany. Whilst this may appear prima facie tautological, it suggests that it is ontologically impossible for all countries to improve their competitiveness at the same time. As a corollary, the question of whether a country ‘rebalances’ its economy, or, more accurately, its economic competitiveness, depends on the point of reference we take.

Arguably, in a monetary union, the only objective measure for this is the development of unit labour costs in relation to the common inflation target, as this indicates which countries were living above and which below their means (i.e. productivity). Looking at the data for the EMU, illustrated in Figure 1 below, we find that a German adjustment is non-existent, as the size of the gap between unit labour costs and the inflation target remains excessively high (meaning that prices of German goods are well below the level they should be, based on the country’s productivity).

Since the outbreak of the crisis in 2010, however, the austerity-driven contraction in southern European economies led to a convergence of unit labour costs towards the deflationary path of Germany. If 2010 is selected as the base, therefore, it is to no surprise that Germany’s unit labour costs have risen faster than elsewhere in Europe. Moreover, it becomes obvious that this deflationary convergence cannot be interpreted as a result of Germany rebalancing its economy.

Figure 1: Unit labour costs for selected Eurozone countries

Source: AMECO; author’s calculations.

The same applies to import and export relations. The data suggest that most of the ‘quiet rebalancing’ of the German economy had nothing to do with fundamental changes to its growth model. Any sustainable form of rebalancing would need to involve re-inflation, led by a surge of unit labour costs, a concomitant appreciation of the real exchange rate and an increase in imports from its European trading partners (as well as a decline of its market share, as further discussed below).

What the IMF data show, however, is that the downturn in countries affected by the eurozone crisis led to a decline in imports from Germany (rather than an increase in exports). From its peak in 2008, Italy’s imports from Germany receded by 2016 by almost a third (from $90 billion to $66bn), imports in France declined from $137bn (2008) to $110bn (2016), in Spain from $62bn (2008) to $45.6bin (2016), and in Portugal from $12.6bn (2008) to $9bn (2016). By 2016, none of the selected countries managed to increase its exports to Germany to balance its bilateral trade in goods. The deficits ranged from over $30bn in France to more than $2bn in the much smaller Portuguese economy.

The fact that Germany accounts for roughly 30 percent of the eurozone’s entire output makes it inevitably a significant export destination for its European partners, so that any attempt to identify a rebalancing process by solely referring to the importance of Germany as an export destination is methodologically inappropriate. What matters is the difference between imports and exports. The map below indicates that, in fact, not only the countries discussed above, but nearly all of Germany’s trading partners have run bilateral deficits in the trade of goods (those with such a bilateral deficit are coloured in red).

Figure 2: Bilateral trade imbalances between Germany and Europe

Note: Map compiled by the author from Direction of Trade Statistics.

Especially around the time of the financial crisis, it appears that these imbalances peaked across the entire continent – with very few exceptions (Ireland, the Netherlands, and Norway). In other words, curing the “sick man of Europe” led to a fever elsewhere. After the onset of the eurozone crisis, the imbalances receded mainly due to a reduction of imports in most countries, which explains the more balanced picture from 2010 onwards. Note, also, that a substantial part of the surpluses of Central and Eastern Europe in bilateral trade with Germany can be attributed to large inflows of direct investments, as these countries effectively function as a cheap workbench for much of German industry.

Finally, the persistence of Germany’s superior competitiveness is best illustrated by its rising share of eurozone exports to world markets (including the EU itself). This measure captures the third market effects of Germany’s real exchange rate, which are often ignored and/or hard to quantify in economic analyses. It also implies that an increase in the German share necessarily entails a declining share of other EMU member states. Figure 3 below illustrates the development of market shares for the three biggest eurozone economies: Germany, France, and Italy. It shows that both of Germany’s big neighbours, which used to have a strong industrial base, faced severe declines in their respective shares: something that, without a doubt, can be attributed to German competitiveness.

Figure 3: Shares of total Eurozone exports (1999 = 100)

Source: Direction of Trade Statistics; author’s own calculations.

In sum, therefore, Germany’s ‘quiet rebalancing’ has in fact been so quiet that is has not taken place. There is no doubt that Germany has thus far neither proposed nor conducted any policies that would lead to such a desperately needed process. The Grand Coalition continued its highly restrictive fiscal policies: what Guntram Wolff, director of Bruegel, so nicely described as “the German allergy to investments”. Now the intellectual edifice of Germany’s coalition agreement continues to be dominated by mercantilist ideas. The only option for both the Christian Democrats (CDU) and Social Democrats (SPD) to increase the wealth of nations is, in their view, through high competitiveness and surpluses in the external sector (although this ideological stance is common across all parties in Germany).

If the eurozone is to survive, one cannot expect Germany to function as a “fixer of last resort”, but rather, it must be remembered that if it does not act as the primary fixer, the breaking apart of the eurozone is just a matter of time.

]]>Growing Eurozone Inequality And What To Do About Ithttps://www.socialeurope.eu/growing-eurozone-inequality-and-what-to-do-about-it
Wed, 21 Nov 2018 04:01:22 +0000https://www.socialeurope.eu/?p=53355Growing inequality between eurozone members is one of the least welcome legacies of the euro- and sovereign debt crisis. The idea that the less well-off member states would catch up with the better-off in terms of GDP per capita was one of the great promises of the Maastricht Treaty, although very little emphasis is given […]

Growing inequality between eurozone members is one of the least welcome legacies of the euro- and sovereign debt crisis. The idea that the less well-off member states would catch up with the better-off in terms of GDP per capita was one of the great promises of the Maastricht Treaty, although very little emphasis is given to it whenever eurozone reforms are discussed. The truth is that convergence never really got off the ground after the treaty was signed.

Income convergence is not only a legitimate expectation of the less well-off. It is also a condition that has to be fulfilled for the euro to be socially and politically sustainable in the long run. Increased market integration only translates into a durable higher growth potential if members also become more resilient to shocks and downturns. Instead, economic recovery has been slow and unequal during the decade and regional differences have become more pronounced (OECD). This undermines – with reason – public support for the common currency.

Several factors account for this alarming trend. While some are peculiar to the member states individually, some others must be addressed at eurozone level.

As to the former, the lack of convergence can largely be ascribed to persisting productivity gaps, which have even widened in the post-crisis years due to the debt overhang and firms’ deleveraging.

As long as some of the causes of macroeconomic divergence lie in long-term endogenous trends, only the member states can do something about them, for instance by implementing the (in)famous structural reforms. Having been often construed as synonymous for “tightening one’s belt”, structural reforms prompt instinctive rejection amongst progressives. They can require the opposite, though, as the Italian case shows.

From the 1990s onwards, Italian firms and legislators attempted to counter Italy’s decline on the world market by increasing wage competition and introducing ever new forms of temporary employment, instead of investing in higher skills, productivity-enhancing technologies, and active labor market policies. This kind of labor market “flexibility” did not halt the productivity decline of Italian producers.

The quality of public administration, of the legal system, and the level of workers’ skills are all challenges that the less well-off member states will have to tackle on their own in the coming years. Debt overhang is, however, a high hurdle on this path. The countries more in need of reducing past debts are those that also find it more difficult to invest in productivity-enhancing reforms. Public investment is sluggish, while private investments also stagnate as a consequence of corporate sector deleveraging. This might deepen the productivity gap, notwithstanding some more recent positive signals in this regard.

Investment by sector: General government,% of GFCF,2010 – 2015

As a result, in the countries that the crisis hit hardest, growth is more at risk than elsewhere. Economic developments at eurozone level are therefore decisive for their recovery to be sustainable.

Two solutions commend themselves in this regard: a central fiscal capacity for investments and a tighter coordination of national economic and fiscal policies such as to fend off populism-fuelling deflationary tendencies.

As to the latter, no news is reported. The Alert Mechanism Report 2018 highlights how a persisting lack of coordination represents one of the eurozone’s key fragilities. Efforts towards rebalancing have rested entirely on the shoulders of deficit countries through internal devaluation and attempts to increase exports. The eurozone economy continues being an export-based system of competing national economies in which very little is being done for balanced and fair growth.

More is apparently being done for the institution of a central fiscal capacity to boost productivity-enhancing investments after the Franco-German Meseberg declaration of 19 June put a euro area budget on the table. This seems, however, only a small and very initial step in the right direction. In a letter sent to European leaders on 25 June, Eurogroup President Mário Centeno reports “differences of views on the need for and possible features of a eurozone budget for competitiveness, convergence and stabilization” and, indeed, the subsequent euro summit’s final statement makes no mention of it. This comes as no surprise, as the Franco-German declaration has been an immediate cause of concern for a number of Eurozone partners. In addition, disagreement concerning the volume of the budget materialized in its immediate aftermath, with French President Macron speaking of an order of hundreds and German Chancellor Merkel of an order of tens of billions euros. Not a negligible difference.

Things are nevertheless on the move in the struggle for eurozone reforms, as the agreement of the two senior partners put a long-awaited issue on the leaders’ agenda. This is normally the first step in European diplomacy for a new phase of negotiations to open in the first place, as Portuguese Prime Minister Costa underscored when stating that “no longer than two years ago the sole allusion at a eurozone budget caused a fit of apoplexy to half of the Council members”.

The next struggle will be fought at the 2019 European elections, when the traditional parties will have to decide whether they want to take responsibility for the advancement of the Union’s social cohesion rather than simply oblige parochial interests. A permanent, adequately funded, and centrally-financed investment facility for productivity-enhancing initiatives would help revitalize aggregate demand, smooth out internal adjustment processes and ease pressure on national budgets in times of deleveraging. This is especially important to the extent that inequalities are increasing not only between, but also within countries, and the more so the hardest they were hit by the crisis. The poverty gap has widened among the working-age population, as welfare provisions could not cushion ten years of sluggish labor markets, loss of production capacity, and skills mismatch.

]]>Collective Bargaining And Greek Labour Market Reformshttps://www.socialeurope.eu/collective-bargaining-and-greek-labour-market-reforms
Tue, 20 Nov 2018 04:01:09 +0000https://www.socialeurope.eu/?p=53300The main feature of the successive economic adjustment programs implemented in Greece in the period 2010-2018 concerning industrial relations was a radical decentralization of the collective bargaining system and the government setting (more explicitly: the reduction) of national minimum wages. Today, despite the almost complete decentralization of that system, the performance of domestic labour markets […]

The main feature of the successive economic adjustment programs implemented in Greece in the period 2010-2018 concerning industrial relations was a radical decentralization of the collective bargaining system and the government setting (more explicitly: the reduction) of national minimum wages. Today, despite the almost complete decentralization of that system, the performance of domestic labour markets fails to meet the policy objectives pursued. The dynamics of employment growth and the reduction of unemployment are weak. Wages have fallen to extremely low levels, contributing to the intensification of in-work poverty, while productivity gains have been marginal.

From governmental corporatism to radical decentralization

Long before the economic crisis, the institutional framework of the Greek labour market was dominated by active state intervention. This governmental corporatism in the field of labour relations remained intact despite the process of Europeanization of the Greek economy and participation in the Eurozone. These policies resulted in segmented labour markets and the phenomenon of ‘jobless growth’ where the job but not the employee were protected.

Interventions in the labour market were organized and promoted through the three successive bail-out programs of the Greek economy under Troika supervision for the period 2010-2018 (Memorandum I, II and III). The most important reforms were a major departure from the previous system of Free Collective Bargaining. These changes include abolishing the “principle of favourability”, suspending the obligatory extension of collective agreements until the end of the economic adjustment program, reducing the time expired collective agreements remain in force to three months from six, introducing non-union representatives into firms with the right to conclude company-level collective agreements (the so-called “associations of persons”) and establishing a legal minimum wage (cut by 22 per cent), not by collective agreement, with sub-minimum rates for employees under 25 years old.

The reforms introduced in the labour market, contrary to policies set out under the European Economic Governance and the Country Specific Recommendations where a deregulation effort was also observed but in a social partnership context (Voskeritsian et al, 2017), promoted a policy of complete decentralization of the collective bargaining system without prior consultation with the social partners. These policies resulted in fragmentation and individualization of collective bargaining practices, after a process of disorganized rather than organized decentralization (Koukiadaki and Grimsaw, 2016).

What were the results of the reform changes in 2010-2018? First, there was a steady increase in flexible forms of employment. Second, wages fell by around a fifth, (20 percept) which has led to an increase in the phenomenon of in-work poverty in the private sector affecting thousands of workers. Third, contrary to mainstream neo-classical theory, labour market reforms have not brought a job-creating economic recovery, as the fall in unemployment has been rather anaemic (to 19 per cent). Fourth, we must not underestimate the impact of these changes on job quality. According to the European Jobs Quality Index 2005-2015, Greece not only records one of the worst performances, but in 2010-2015 a further deterioration as a consequence of both the downward phase of the economic cycle as well as the deregulation of employment.

Last and most important, the significant reduction in labour costs did not lead to an increase in total labour productivity and consequently in the competitiveness of the Greek economy, as shown in the graph below:

The role of social trust

Let us now examine the role of collective bargaining in the economic efficiency of labour and, in particular, its importance in the Greek labour market during the economic crisis. The concept of voice plays a central role in the economic behaviour of collective bargaining. Voice is the alternative response to the crisis of organizations and businesses instead of exit. In some cases, voice has lower costs than exit, allowing organizations to adapt to new conditions. The positive collective voice/institutional response can change the nature of the employment relationship and, in doing so, increases levels of productivity and equality in many settings.

Nevertheless, an effective collective voice presupposes high levels of trust between social partners. Strong statutory regulation undermines the possibilities of effective labour relations. Indeed, a negative correlation exists between the degree of cooperation among social partners and that of state intervention in the determination of industrial relations (Aghion, Algan and Cahuc, 2008). Therefore, voice, in the form of social dialogue, is the key feature of an effective co-ordination mechanism in labour markets. Without adequate voice, co-ordination becomes inefficient, owing to incomplete and asymmetric information. Thus, the main issue is how far the institutional framework for collective bargaining is sufficiently representative and inclusive.

Low trust is one of the main features of the Greek labour market. Since 1990, the statutory regulation of the collective wage bargaining system has prevented a representative social dialogue from functioning. A multitude of professional groups and social categories remained on the periphery of collective bargaining, conducted under state regulation, and with unions, mainly in the public sector, being over-represented. On the contrary, the unemployed and the private sector employees were kept at the margins of the Greek dual labour markets. The low level of trust in the Greek labour market is evidenced by a series of indicators such as the low participation in trade unions (low union density) and the high numbers of strikes before and during the recession. Therefore, the collective voice was not representative and social dialogue was ineffective. Interestingly, Greece is the only EU country where the minimum wage is fixed unilaterally by the state at the final stage without prior consultation of the social partners. Thus, communication was blocked, the landscape of labour relations was deeply confrontational, and there was little room for cooperation.

The radical deregulation of the Greek labour market has led to the disintegration and disorganization of labour relations and almost complete individualization of wage bargaining. Labour market institutions are deeply rooted in national histories and social norms. “One-size-fits-all” policies for wage bargaining co-ordination rarely work. The Greek economic crisis and the subsequent adjustment of labour markets leave room for useful institutional experimentation based on the specific characteristics and needs of the Greek labour market. That could be an appropriate firm-level bargaining system combined with a national framework for setting wage floors.

]]>Creating Good Quality Jobs: If Not Now, Then When?https://www.socialeurope.eu/creating-good-quality-jobs-if-not-now-then-when
Wed, 14 Nov 2018 04:01:51 +0000https://www.socialeurope.eu/?p=53419Everybody at the European level agrees that we need more quality jobs to build momentum for recovery and climb out of the years of crisis. But what does this actually mean? And what realistic plans are in place to achieve growth that is ‘rich in quality jobs’? Late last year, the European Trade Union Confederation […]

Everybody at the European level agrees that we need more quality jobs to build momentum for recovery and climb out of the years of crisis. But what does this actually mean? And what realistic plans are in place to achieve growth that is ‘rich in quality jobs’?

Late last year, the European Trade Union Confederation adopted a working definition of quality jobs. This six-point framework is designed to serve as a roadmap towards these jobs by identifying what features they need to qualify as such. They are not exhaustive and, of course, some features are more important than others for different groups of workers in different sectors, but at least for the first time we have a working definition broadly agreed by the European trade union movement. Now it is surely time for the EU institutions to do the same.

The social challenge

Despite the welcome headline figures – unemployment down, employment up – there is a quiet jobs crisis going on throughout EU member states. Perhaps this can best be seen in the figures for total hours worked across Europe: These clearly demonstrate that despite growth in the labour market and increasing employment rates, job hours and volume of work have still not recovered from the economic crisis. Indeed, far from satisfying the EU’s declared ambition, the growth is job-poor.

The thinner spread of available work raises very serious questions about the economic and social models member states are built on. Ambitious objectives of the past such as ‘full employment’ have given way to precarious job creation as risk is transferred onto labour. Practices in the so-called ‘gig economy’ are a blatant example of this process, but so too are increases in self-employment and other non-standard employment arrangements.

The results are exactly what the trade union movement warned of: in-work at-risk-of-poverty is up; more people are scraping by on second and even third jobs; collective bargaining is undermined. And these social problems lead to political ones too. It is no coincidence that the growth of populism and nationalism in Europe has accompanied this casualisation of work and the insecurity it has brought.

Taking work quality forward

The ETUC’s definition is designed to raise the profile of work quality as a social and economic policy priority and to guide core ETUC employment policy demands both inside and outside the annual European Semester cycle. It covers a broad gamut of ETUC priorities under the six points:

Good wages

Work security via standard employment and access to social protection

Lifelong learning opportunities

Good working conditions in safe and healthy workplaces

Reasonable working time with good work-life balance

Trade union representation and bargaining rights

The demand for job quality is now critical for employment policy tools and co-ordination strategies to address the profound challenges that workers are facing. We have endured a long period of hardship when the demand for higher work quality initiatives took second place to tackling rocketing unemployment figures. The EU’s institutions can no longer hide behind these arguments or make weak excuses about competences.

If now is not the time to focus on creating good quality jobs, workers in Europe are entitled to ask when exactly it will be.

We are inviting all potential partners at EU level, including the European Commission, the political groups we collaborate with and employers’ organisations to adopt our six-point definition or, alternatively, to articulate what they consider to be ‘quality jobs’. The key point is to explore together, in the spirit of social partnership, how to create more and better jobs for all.

Pursuing work quality: putting words into action in the Semester 2019

The ETUC definition is designed to adapt to the needs of different economies, different sectors and different member states. Some challenges are greater on some European labour markets than others.

From stagnating wage growth in many member states to the shortage of standard open-ended contracts, the Semester 2019 should focus on addressing social problems arising from the growth in low-wage, ultra-flexible employment regimes. Standard employment contracts – i.e. full-time, open-ended ones – continue to be elusive for large numbers of Europeans. This is especially true for young workers, women, and many workers with a migrant background. This is a direct consequence of the deregulation of labour markets in response to the crisis and implemented, in many cases, via previous Semester cycles.

Access to personal development and skills acquisition continues to be a major source of inequality between member states, with wide gaps between public investment in lifelong learning on one hand and access of opportunities for workers on the other. Autonomy remains a widely overlooked principle in guiding lifelong learning policies. As a result, too many people have access only to learning opportunities that serve employers’ requirements, rather than their own ambitions.

Excellent working conditions with world-leading occupational health and safety standards should be the ambition of all member states. Yet thousands of workers die prematurely every year because of workplace accidents and illnesses; many others endure hazardous conditions. According to Eurostat, in 2015 alone there were 3.2 million accidents at work, 3,800 of them fatal.

Working time is an increasing challenge, too. While total hours worked have not recovered post-crisis, at the same time some people are suffering burnout from excessive workload. The ETUC is therefore launching a discussion on working time and how work can be spread more equitably. The Commission should do so too and address the issue in Country Reports 2019.

Finally, trade unions active in robust sectoral and cross-sectoral collective bargaining and social dialogue remain the biggest indicator of strong yet sustainable economies. The Commission has made a reasonable effort to relaunch social dialogue in the last few years. But the Semester 2019 must build on this to correct low levels of collective bargaining in some member states and the indirect influence of labour codes in obstructing the growth of social dialogue. When national labour market institutions are ‘reformed’ in ways which exclude trade unions, it cannot be claimed that there is no appetite for social dialogue and collective bargaining. These are fundamental democratic processes and they must be sustained and extended through the rigorous pursuit of wider collective bargaining coverage. The idea that strong social dialogue can exist alongside weak trade unions is absurd.

]]>Income Inequality And Trust In National Governments In Central, Eastern And Southeastern Europehttps://www.socialeurope.eu/income-inequality-and-trust-in-national-governments-in-central-eastern-and-southeastern-europe
Thu, 08 Nov 2018 04:00:15 +0000https://www.socialeurope.eu/?p=53308Trust in national governments has reached worryingly low levels in Central, Eastern and Southeastern Europe (CESEE), at least compared to the EU-15 average. In addition, trust in the EU is generally higher than trust in national governments, underlining the importance of the prospect of joining the EU in these societies. Very recently, the Organization for […]

Trust in national governments has reached worryingly low levels in Central, Eastern and Southeastern Europe (CESEE), at least compared to the EU-15 average. In addition, trust in the EU is generally higher than trust in national governments, underlining the importance of the prospect of joining the EU in these societies. Very recently, the Organization for Economic Co-operation and Development (OECD) and the European Bank for Reconstruction and Development (EBRD) have published major reports, concluding that trust is essential for a well-functioning economy and growth. Based on unique data from the Euro Survey (compiled by Oesterreichische Nationalbank, the central bank of Austria), we study the impact of income inequality on trust in national governments in ten countries in Central, Eastern and Southeastern Europe, the CESEE-region (see the complete study for more details).

Christian A. Belabed

We calculate measures of regional and country-level income inequality (e.g. Gini-Index, top and bottom income shares), the first time this has been done for some countries in our sample. Overall, levels of income inequality are still lower in most CESEE countries than in Western Europe and declined in most countries of the region between 2009 and 2015 (see left-hand figure). Trust in governments and income inequality are negatively correlated, as we would expect (see figure below).

Using econometric techniques to account for the hierarchical structure of the data, and taking into account various other potential explanations for trust in governments, our main findings include:

Regional and country-level income inequality negatively influences the probability to trust national governments;

An individual’s relative income position positively correlates with the probability of trust in national governments. In essence, the higher an individual’s earnings, the more likely that they trust their national government;

Perceived high levels of corruption and weak rule of law are key determinants of distrust in national governments;

Finally, the negative correlation between income inequality and the probability of trust in national governments is more pronounced in non-EU countries.

Apart from the political implications of the rise of populism, our results suggest that there might also be severe economic implications. For instance, if people do not really trust their government, why should they comply with tax rules? Consequently, if public revenues are low due to tax evasion or tax avoidance – both are widespread in some of these countries – how are expenditures on education or labor market programs going to be financed?

In that regard, the EBRD, in its 2017 flagship report, found that the quality of institutions is key for economic and political success. In short, simply providing another school will not change much if the quality of teachers, materials or educational programs is poor. As other studies have shown, a lack of trust hampers economic growth by putting a drag on consumption and investment. If individuals do not really trust their government, how are they supposed to consume or invest? Obviously, it is also imperative for the smooth working of finance. Trust in various institutions is highly correlated, which means that low levels of trust in governments usually go hand in hand with lack of trust in other institutions such as banks. This may act as a barrier to development as well, which is particularly important for the countries under investigation.

In conclusion, our study suggests that income inequality has a negative impact on the probability of trust in national governments, which in turn has economic and political consequences for the countries under examination. In light of our findings, any measures to reduce income inequality are obviously welcome. These measures may include increased efforts to improve the skills of the workforce through education and active labor market programs, measures to alter the primary distribution of income (e.g. minimum wages, collective bargaining arrangements), a more progressive tax system or taxation of wealth to support income tax relief for or public transfers to poorer households. Hence, a wide-ranging approach is required to ensure high trust in national governments in the CESEE region.

Disclaimer: the views expressed here are those of the authors and do not reflect the official viewpoint of the Oesterreichische Nationalbank (OeNB) or of the Eurosystem.

]]>Are Blue-Collar Jobs Turning White?https://www.socialeurope.eu/are-blue-collar-jobs-turning-white
Wed, 17 Oct 2018 04:01:59 +0000https://www.socialeurope.eu/?p=53166Manual jobs in European manufacturing are being transformed as blue-collar workers take on more intellectual tasks. This is a consequence of the increasing use of digital tools and the growing importance of quality control in production. The severe losses of medium-paying jobs in the manufacturing sector during the economic crisis raised concerns about its future […]

Manual jobs in European manufacturing are being transformed as blue-collar workers take on more intellectual tasks. This is a consequence of the increasing use of digital tools and the growing importance of quality control in production. The severe losses of medium-paying jobs in the manufacturing sector during the economic crisis raised concerns about its future role and contribution to economic progress. However, not only has the recovery brought back employment growth in manufacturing, but there has also been a shift towards higher-skilled professional occupations, especially in machinery and equipment as well as motor vehicle production (up seven percent a year since 2013), as described in Eurofound’s 2017 European Jobs Monitor report.

Enrique-Fernández-Macías

This upgrading of employment in manufacturing is further borne out by Eurofound’s latest report on the future of manufacturing in Europe, which looks at the types of tasks performed by workers on the job. We carried out case studies into five occupations within manufacturing: car assembly-worker, meat-processing worker, chemical products machine operator, hand-packer and inspection engineer. These case studies suggest that intellectual tasks involving information processing and problem solving are becoming more common in manufacturing jobs where physical tasks predominated traditionally.

Technology and quality control

Two main factors are contributing to this trend, one purely technical and the other more institutional. First is the rising use of digitally controlled equipment in production. This not only requires that workers in manual, semi-skilled occupations have more developed ICT skills, but also increases the literacy- and numeracy-related tasks they have to perform, such as reading technical documentation or dealing with numerical information. The spread of automation and the use of advanced machinery in production is also driving up the importance of problem-solving intellectual tasks, with shop-floor workers being tasked increasingly with troubleshooting production lines and handling errors.

Among the five key occupations analysed, the work of car assemblers has been the most significantly affected by digitalisation in recent decades, both in terms of manufacturing processes (including the development of digital factories that use sensors, algorithms and robots) and customer relationships (with cars becoming more digitised and allowing users to interact with them and evaluate the information collected through specialised applications).

The second factor is the increasing use of quality control and standards in production. This is driven by regulation, consumer demand and the increasing complexity of production processes (as exemplified by global value chains). Quality standards impose a certain degree of formalisation on the production process, with the use, for instance, of benchmarking documentation, detailed planning and performance indicators. Many of these quality-control procedures are at least partly carried out by shop-floor operators, whose task set has broadened to include documenting problems, assessing numerical benchmarks, filling in forms and so on. The work of hand-packers has for instance evolved in response to consumer demand for high-quality packing and delivery, particularly in relation to product traceability. The more experienced and qualified workers have also to be able to perform complex logistical and coordination tasks too (e.g. packing and shipping products on time to many different customers).

Conversely, the importance of physical tasks is generally decreasing because of automation, although the extent of this differs depending on the comparative advantages and efficiency associated with manual versus machine task performance. Tasks that require workers to exert physical strength, in particular, are in decline, but tasks that require dexterity remain an important part of some shop-floor jobs, notably in the context of operating machinery. Among the occupations studied, meat processing workers are the clearest exception to the declining trend in physical tasks: the reason for that being that the processing of meat is difficult to automate because of its inherent variability and it remains too expensive relative to the cost of human labour.

Finally, with regards to social tasks, these are generally more important for services than for manufacturing. The occupations within this study have very little contact with customers or people outside the shop floor, and the social tasks within their jobs are restricted to cooperation with co-workers and some coaching of new or less experienced colleagues. Both meat processing workers and chemical plant operators tend to work alone, so even cooperative task content is relatively limited within these roles.

Implications for job quality

Such changes have significant implications for job quality. The decline in physical tasks, combined with more restrictive safety regulations limiting direct contact with machinery, has the benefit of reducing physical workplace risks for some manual occupations. This, together with the upgrading of work in terms of intellectual tasks, has contributed to job quality improvements in traditional manual occupations in manufacturing. However, automation technology is not spread equally across industries and is far from becoming mainstream in many jobs where human labour is still preferred, mainly due to the comparatively low costs and the still very significant technical challenges involved in their automation.

The reshaping of manufacturing occupations poses significant challenges for our societies. The skills of the workforce must keep pace with technological change, and education systems have to be modernised to meet the needs of ever-changing workplaces. Employment regulation and industrial relations systems must also evolve to maintain their effectiveness as occupations are transformed; in times of rapid economic transformation such as these, their mediating role becomes particularly important for the translation of technical change into socioeconomic progress for all.

]]>Alleviating The Working Poor Will Take More Than Job Creationhttps://www.socialeurope.eu/alleviating-the-working-poor-will-take-more-than-job-creation
Mon, 15 Oct 2018 04:01:28 +0000https://www.socialeurope.eu/?p=53052With the onset of the economic crisis since 2008, a new term, the working poor, has emerged at European level. This new “class” features a portion of the population that, although working, is paid below the relative poverty line. The working poor is closer to the European poverty indicator, the relative poverty which is assessed […]

With the onset of the economic crisis since 2008, a new term, the working poor, has emerged at European level. This new “class” features a portion of the population that, although working, is paid below the relative poverty line. The working poor is closer to the European poverty indicator, the relative poverty which is assessed at an income below 60% of the national average national.

One of the main reasons for the growth of this phenomenon was the sharp increase in unemployment, the rise in part-time working and austerity measures as a repercussion of the economic recession. The working poor issue requires more attention not only for the amelioration of living standards but also for the fight against social exclusion which is one of the biggest threats posed by poverty.

The following graph from Eurostat depicts with clarity the problem of working poor in the European Union, with the countries of the Balkans and South Europe showing the biggest percentage:

For this reason EU should devise effective measures and tailor-made policies to erase the issue of working poor in its member states and meet their needs.

EU should undertake policies and initiatives to tackle the phenomenon of working poor

Within this context, EU has set the target, through the Europe 2020 Strategy, of reducing the numbers of poor people by 20m, paying particular attention to employment, education and training. Both the European Social Fund and the European Strategic Investment Fund seek to create new jobs and reintegrate young people into either education or training programs.

However, in order to improve the standard of living of that section of the population that while working is on the poverty line and cannot fulfill its basic daily needs and activities, these tailor-made measures and initiatives could include some of the following:

Digital skills are crucial for employees

Since one of the variables affecting working poor is education, more emphasis should be given to improving the educational attainment of the working poor. Education plays a fundamental role in the fight against social exclusion. For this reason, access to lifelong learning and vocational education programs according to the needs of the labour market, with emphasis on digital skills, will enhance the skills of employees to adapt to more and different working environments. It should be mentioned that estimates show that around 40% of people in the EU workforce do not have adequate digital skills; 14% have no digital skills at all. Given that the digital economy will dominate in the upcoming years, those skills are crucial for the employees.

European Social Rights Pillar

Furthermore, strengthening the welfare state with the guarantee of a living wage, access to healthcare, better working conditions, social benefits and the protection of part-time, temporary, precarious and undeclared workers should be a priority. The EU, through the European Social Rights Pillar, aims to build a fairer and more socially inclusive EU. The three main categories are: equal opportunities and access to employment, fair working conditions and social protection and inclusion. Under this framework, the fight against the phenomenon of working poor should be driven institutionally.

Sustainable Development Goal 8

The EU should also act in accordance with the Sustainable Development Goal 8: “Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all”. Within this framework, the EU should boost investments in areas that could assist growth, depending on the specific needs of each individual country but based on the above-mentioned employment criteria.

Single-earning households

Another great issue is single parents or families with children and one employee in the household that are at risk of poverty. In these cases a proper work-life balance plan is needed (including childcare services) to facilitate access to work for these parents. In some cases, the lack of childcare services reduces the job-seeking opportunities or the full working day of single parents, and increasing the risk of poverty for them.

Consequently, it may be inferred that job creation is not the only pathway to tackle and reduce the poverty or unemployment rate as the sheer scale of the working poor indicates that a series of measures and policies are still needed to ensure quality, stable and decent work. In order to reduce social exclusion and improve the standard of living of working poor, urgent measures and tailor-made policies should be taken by EU both at institutional and individual level.